A look at mortgage servicing fraud

The mortgage servicing environment in today’s world is a harsh one indeed. Undoubtedly, a large number of mortgage servicers have taken unfair advantage of the loans they service in a multitude of ways. We will set out a few of the key ways that mortgage servicing fraud is being committed by the mortgage servicers.

One of the first ways mortgage servicers commit fraud involving the loans they service is through the wrongful charging of late fees. Servicers accept payments on behalf of the owners of the loans, and through those payments, they receive a small portion of the interest of each payment. But, if a late fee is charged and collected, the servicer is able to keep 100% of that late fee. Unfortunately, this gives the mortgage servicing companies an incentive to charge as many wrongful late fees to their loans as they can. Therefore, it’s important to focus on the date in which the payment in question was mailed, received, submitted online or paid otherwise as compared to when it was posted. Then you must reference the grace period allowed in the mortgage to see if the late fee charged is valid and follows the law.

Another method of fraudulent actions committed by mortgage servicing companies is the wrongful force-placing of homeowner’s insurance. Pursuant to most mortgage agreements, the borrower has a duty to maintain homeowner’s insurance on the property at all times. But, it has been discovered recently that mortgage servicers have been force-placing insurance on property under mortgage that already had adequate insurance. This indicates that the servicers are not performing the proper due diligence when it comes to finding out if there is already insurance coverage on the subject property. In many instances the borrower won’t realize that additional insurance has been placed on his or her property. That’s because the insurance is listed as a corporate advance that goes toward the overall balance. As a result, it does not always show up on the monthly statements.

Two other areas of fraud being committed by mortgage servicers involve repayment plans and forbearance agreements. Specifically, repayment plans or forbearance agreements are methods used by servicers as a way to allow the servicer to collect delinquent amounts over a shorter payment period comprised of larger amounts (that make up a total of the current amount due plus a portion of the delinquent amount due). Once those larger amounts have been paid over the shorter period, the borrower is brought current on his or her payments. But, it has been discovered that mortgage servicers have been tacking on additional amounts to those total pay back amounts. This sort of thing is quite often not known by the borrower. Therefore, repayment plans and/or forbearance agreements must be looked at closely to determine whether or not the amounts that are being paid back are the correct total amounts of what is actually owed.

Lastly, another major area of mortgage servicing fraud involves HAMP Loan Modifications. Mortgage servicers have the ability to apply and be accepted in the federal government’s Home Affordable Modification Program (HAMP). If accepted, the servicers have the ability to submit loan modifications on behalf of borrowers through that program. There are several guidelines imposed by the government, but the mortgage servicers actually receive money from the government for each loan that is modified. Unfortunately, we have seen many loans that have been taken through the loan modification process and then ultimately denied at the end. This could be linked to the fact that servicers receive more money when a loan is foreclosed on as opposed to the money received from the government for modifying a loan.

An unfortunate aspect of this process is that payments made toward the loan modification go only to the loan modification itself. If a borrower is ultimately denied, the payments that were made toward the loan modification are not applied to their regularly scheduled monthly payments. In turn, this causes the borrower to become greatly deficient and immediately delinquent on their past-due, unpaid monthly payments. Thus, the borrower is automatically placed in default. In most instances, unless something is done immediately, the borrower loses his or her dwelling very soon because the foreclosure process is started almost immediately.

There are also other areas of mortgage servicing fraud and I’m sure there are some that are yet to be discovered. But, we have set out the five major areas of concern where mortgage servicers are committing fraud on borrowers in the servicing of their loan. If you need additional information relating to the matters described above, contact Bill Robertson, a lawyer in the firm’s Consumer Fraud Section, at 800-898-2034 or by email at Bill.Robertson@beasleyallen.com.